In my June 10 put up on the penny, I wrote:
The U.S. authorities makes a fairly penny (pun meant) on seigniorage. It’s not as a lot because it was as a result of an increasing number of individuals use bank cards and even cryptocurrency to purchase items and companies. Nonetheless, it’s a great quantity.
The most important acquire from seigniorage is on the $100 invoice. Printing one prices the federal authorities simply 9.4 cents. So, when the feds spend this $100, they make a pleasant revenue of $99.90. Not dangerous. Printing a $1 invoice prices the feds 3.2 cents. So even on a $1 invoice, the feds make 97 cents.
Within the feedback, Rob Rawlings wrote:
I’m a bit confused by the thought of the federal government incomes seigniorage by printing new notes. Joyful to be corrected if I’m improper however don’t they earn seigniorage after they purchase again their very own bonds with newly created digital cash moderately than after they print new paper notes? Once they print these new notes (to match an elevated demand to carry them moderately than digital cash) then the prices of printing looks as if it might be an actual value.
I agreed that the price of printing could be an actual value however that that value was small relative to the face worth of a $100 invoice and even of a $1 invoice.
Rob responded:
If the newly printed notice is offered to a financial institution in change for an equal quantity of base cash, then the place is the “web seigniorage”? It appears the seigniorage occurred beforehand when the federal government created new base cash by shopping for again bonds.
One way or the other, in responding, I missed Rob’s second sentence above. I believe that’s true. The underside line is that there’s seigniorage and that he recognized the place it occurs.
I believe I erred in even going within the path of speaking about “web seigniorage,” as you’ll see after I quote Jeff Hummel beneath.
I introduced in my financial idea and coverage guru, Jeff Hummel, who despatched me the next paragraph:
I believe we simply have a definitional distinction right here. If you wish to take a look at web seigniorage as you outline it, that’s tremendous and generally informative. However what I believe is the usual approach to consider seigniorage is as a tax (a tax on actual money balances), analogous to express taxes and authorities borrowing, the opposite two most important methods governments generate income. Each of these have their related prices of assortment that you may not less than in idea web out. However regardless of how a authorities creates a brand new greenback and places it into circulation, whether or not with a coin, invoice, or electronically as with non-interest-bearing financial institution reserves, the burden imposed on the federal government’s topics (by means of an eventual discount of actual money balances) continues to be finally a greenback.
I agree with Jeff. Nicely, virtually. I’m going to be a bit of choosy right here and level out that the burden of a tax isn’t (besides within the case of a lump-sum tax) the quantity of income collected. It’s that quantity plus the deadweight loss, on this case, from individuals economizing on their holdings of actual money balances.
It happens me now looking back that some readers may assume I’m advocating that the federal authorities print extra $100 payments. I’m not.
As an alternative, I’m making a extra modest level, and it’s this. Let’s say that the Federal Reserve has chosen an optimum financial coverage, outlined nonetheless. Scott Sumner could have one definition, John Taylor one other, and so forth. However let’s hypothesize that in selecting this optimum financial coverage, the Fed assumed that there could be no extra demand in different nations for U.S. foreign money. In different phrases, it assumed that no matter U.S. foreign money was at the moment being held overseas, there could be no extra demand.
However, it seems, there’s extra demand. Then the optimum financial coverage wouldn’t be the one the Fed selected. The optimum coverage could be to print extra $100 payments.
Notice 1: Because of Rob Rawlings for elevating good factors and to Jeff Hummel for serving to me assume by means of it.
Notice 2: I gave instructions to ChatGPT to attract an image of a $100 invoice with, attributable to whimsy on my half, the scale of Ben Franklin’s head exaggerated. At no matter measurement, I believe Franklin’s expression makes him look a bit of like Jack Benny.